Global Trading Centre (GTC) incentive

Global Trading Centre (GTC) incentive

In Budget 2021, to enhance and simplify tax incentives for trading activities, a new tax incentive was proposed in the form of a GTC with a concessionary tax rate of 10% for a period of up to 10 years (made up of an initial five years, extendable for a further five years) (see Take 5: Malaysia Budget 2021).

Thereafter, the Malaysian Investment Development Authority (MIDA) published on its website the “Guidelines on Incentive for Setting up a GTC” (Guidelines) to provide further details on the incentive (see Tax Alert No. 20/2021). The Guidelines were effective from 1 January 2021.

Following the above, the Income Tax (Global Trading Centre Incentive Scheme) Rules 2022 [P.U.(A) 48] (Rules) were gazetted on 4 March 2022. The Rules provide that a qualifying company which carries on a business in respect of a qualifying activity under the GTC Incentive Scheme (Scheme) shall be taxed at 10% for five consecutive YAs, commencing from the date as determined by the Minister (referred to in the Rules as specified YAs).

The Rules shall apply to a qualifying company which applies for the Scheme to the Minister, through MIDA. The application must be received by MIDA between 1 January 2021 and 31 December 2022.

The incentive is subject to the qualifying company complying with the conditions imposed by the Minister as specified in the approval letter and the Guidelines issued or revised by MIDA and approved by the Minister. The conditions include that the qualifying company must:

• Employ at least 15 full-time employees with a basic salary of at least RM5,000 per month throughout the specified YAs to carry on the qualifying activity. At least 50% of the employees must be Malaysians.
• Have paid-up capital of at least RM1 million to carry on the qualifying activity
• Incur an annual operating expenditure of at least RM1.5 million to carry on the qualifying activity
• Achieve annual sales of at least RM300 million from the qualifying activity

The following terms have been defined in the Rules:

(a)  Scheme

       An incentive scheme for a qualifying company to undertake a qualifying activity and approved by the Minister

(b)  Qualifying company

       A company which:

       (i)       Is a Malaysian-resident and incorporated under the Companies Act 2016

       (ii)       Has not carried on any activity in Malaysia

       (iii)      Fulfills the eligibility conditions imposed by the Minister under the ITA and the Rules

       (iv)      Uses Malaysia as its international trading base

(c)  Qualifying activity

       An activity undertaken by a qualifying company in respect of strategic sourcing, procurement and distribution of raw materials, components and finished products to other companies within or outside Malaysia

The incentive is extendable for a further five YAs if the qualifying company satisfies the relevant conditions. The application for the extension must be submitted to the Minister through MIDA within 30 days after the expiry of the specified YAs.

The Rules also provide that the Minister may allow the qualifying company to surrender the incentive granted, by providing notice in writing to the Minister through MIDA, except in situations where the qualifying company fails to comply with any conditions imposed in relation to the incentive. The surrender of the incentive shall take effect from the first day in the basis period for the YA in which the application for the surrender of the incentive is received by the Minister through MIDA.

The non-application provisos stipulate that the Rules will not apply to a qualifying company which has in the specified YAs: 

(a)   Made a claim for allowances under Schedules 7A or 7B of the ITA

(b)  Been granted any incentive under the Promotion of Investments Act 1986 for the similar qualifying activity

(c)   Been granted an exemption under Sections 127(3)(b) or 127(3A) of the ITA for the similar qualifying activity, or

(d)  Made a claim for deduction under any rules made under Section 154 of the ITA  except:

(i)     The rules in relation to allowance in Schedule 3 of the ITA

(ii)    The Income Tax (Deduction for Audit Expenditure) Rules 2006, or

(iii)   The Income Tax (Deduction for Expenses in relation to Secretarial Fee and Tax Filing Fee) Rules 2020

The Rules are effective from YA 2021.